Consumer Advocacy Group Challenges Insurance Surcharges in Court
A consumer advocacy group has filed a lawsuit against the California Department of Insurance and Commissioner Ricardo Lara to block hundreds of millions of dollars in potential surcharges on California homeowners’ insurance bills. Consumer Watchdog argues that the surcharges stem from a decision by Commissioner Lara last summer allowing insurance companies operating the California FAIR Plan to pass costs to policyholders after catastrophic events.
The lawsuit centers on a $1 billion assessment approved on February 11 following the Palisades and Eaton Canyon wildfires in Southern California. Consumer Watchdog claims that up to $500 million of this assessment could be passed on to homeowners across California. The group contends that this decision benefits insurance companies while unfairly burdening homeowners and renters.
“The commissioner’s decision to allow pass-throughs is unjustified on multiple levels,” said Ryan Mellino, staff attorney for Consumer Watchdog. “Homeowners and renters across the state will be charged more and the FAIR Plan won’t be depopulated. The real beneficiaries of this decision are the insurance companies that make up the FAIR Plan.”
The California FAIR Plan serves as the state’s insurer of last resort, providing coverage to homeowners who cannot obtain insurance through regular channels. The plan is operated by insurance companies that are assessed for funds when the FAIR Plan faces financial shortfalls after major disasters.
The insurance industry has pushed back against the lawsuit. Denni Ritter, department vice president of state government relations at the American Property Casualty Insurance Association (APCIA), called the legal action “a reckless and self-serving stunt that threatens to make California’s insurance crisis even worse.” Ritter argued that blocking cost recovery would jeopardize the FAIR Plan’s ability to provide last-resort coverage and potentially destabilize the insurance market.
Consumer Watchdog’s petition alleges that Commissioner Lara’s decision to allow insurance companies to shift costs to homeowners was made without public input, violating the Administrative Procedure Act. The group also claims that the decision directly contravenes FAIR Plan statutes, which require insurance companies to share both profits and losses proportionally.
The lawsuit highlights the ongoing challenges in California’s insurance market, particularly in the wake of devastating wildfires. As the legal proceedings unfold, the fate of potential surcharges on homeowners’ insurance policies remains uncertain, with significant implications for both insurance companies and California residents.
